Newegg “back on track” after beating patent troll at ITC

Licensing isn't enough to be a "domestic industry," at least not this time.

Last month, troll-fighting online retailer Newegg suffered a stunning setback when it lost in court to TQP Development, a patent-holding company that claims to own the rights to basic Web encryption.

This week the company has said it's "back on track" after getting a total win against a patent troll called Technology Properties Ltd., or TPL, at the International Trade Commission (ITC). Newegg was part of a coalition of tech companies that refused to settle, including Canon, HP, Seiko Epson, Kingston, and a Taiwanese company called HiTi Digital. The original complaint was filed against 21 companies, most of which have settled, just recently including Acer.

In this case, TPL asserted four patents that it said covered most types of card readers, like the ones sold by Newegg under its house Rosewill brand. The accused products also named printers and laptops with multiple card slots.

Further Reading

The issue of patent-holding companies at the ITC is a controversial one. The ITC was created in the 1930s to enforce US trade laws, and today its six administrative law judges are busy mostly with patent disputes. Such "investigations" are only supposed to be opened by a "domestic industry," but the ITC has often set the bar very low, allowing many trolls to successfully litigate and win settlements at the ITC. Employees related to patent-licensing—essentially, the business of trolling—are often considered enough of an "industry" to be worthy of protection.

That didn't happen here, as TPL was found to have no domestic industry. The decision may be a harbinger of things to come. President Barack Obama has the power to change how the ITC works even without help from Congress, since it's part of the executive branch, and he has already suggested tightening up the standards in his report on "patent assertion entities" (a name the government often uses instead of "trolls") earlier this year.

"We're very happy that we're back on the track of winning these cases," said Newegg's Chief Legal Officer, Lee Cheng, in an interview about the csae. "TPL tried to extend a patent far beyond what it was intended to cover, and we just blew them away."

During the initial trial, TPL lost on three of its patents but succeeded in finding that one was infringed, and the company qualified as part of a "domestic industry" because it had been heavily licensed. Today's order (PDF) from the full commission upholds the part of the ruling that TPL lost, and reverses the one patent ruling on which they had succeeded.

The three patents (found here, here, and here) were found to be not infringed because the accused products don't perform "mapping" the way they're described in the patents. "The logical assignments for the various contact pins is never mapped and is fixed," the respondent companies explained in their post-trial brief.

The patents originated with a company called OnSpec Electronics but appear to have been sold to TPL at the end of 2006. TPL is part of a larger patent-holding concern called Alliasense.

The commission vote against TPL was 5-0, with one commissioner having been recused. A full opinion explaining the commission's reasoning will likely be released in the coming months.

TPL tried to justify its domestic industry on the basis of its "substantial licensing investment" and the market value of those licensed products, which include a wide array of card readers made by different companies.

The defendants successfully argued (appeal brief, PDF) that the investments in licensing weren't related to actual "articles protected by the patents" and shouldn't be enough to find for protection. Intel chimed in with a comment brief supporting the defendants' position as well.

TPL can appeal this finding to the US Court of Appeals for the Federal Circuit, which oversees both ITC and district court cases. A concurrent court case was filed in the Eastern District of Texas but was put on hold pending the ITC case. Since the commission has found none of these four patents infringe—not just because of the "domestic industry" issues, but also on technical bases—that case is dead for now.